Indonesia Lowers Capital Requirement to Attract Foreign Investment

For years, Indonesia’s foreign investment conditions have carried a quiet contradiction. On one hand, policymakers declared the nation open for business, and on the other, the high capital thresholds often kept smaller global entrepreneurs at bay. However, a new regulation, Minister of Investment Regulation No. 5 of 2025, has disrupted this status quo, reducing the paid-up capital requirement for foreign-owned limited liability companies (PT PMA) from IDR 10 billion to IDR 2.5 billion.

The change, while seemingly technical, may carry wide-reaching economic consequences. It represents a recalibration of Indonesia’s priorities at a time when the country is jostling for its share of Southeast Asia’s booming investment flow. With GDP growth hovering around 5% annually and foreign direct investment reaching US$50 billion in 2024, Jakarta’s message is unambiguous: the door to doing business in Indonesia has never been this open or this competitive.

Can Lower Capital Requirements Spark an Investment Renaissance?

The new threshold of IDR 2.5 billion, roughly US$160,000, signals a deliberate pivot toward inclusivity. Where once heavyweight foreign players dominated Indonesia’s market, the regulatory shift now opens the gates for small and medium-sized investors, including digital startups, boutique consultancies, and emerging green-tech firms that once found the barrier too high.

Officials believe this reform could unlock thousands of new business registrations, particularly in high-value services and technology. Yet, Indonesia has not abandoned prudence, which means companies must still demonstrate a minimum investment plan of IDR 10 billion (US$640,000) through the OSS-RBA risk-based licensing system.

Balancing accessibility and credibility

Reducing paid-up capital lowers initial costs while maintaining large-scale credibility through the investment plan requirement.

Stimulating entrepreneurship

Foreign professionals, freelancers, and SME founders are now finding Indonesia a viable base for their regional operations.

Diversifying the investor profile

The government anticipates greater diversity in foreign ownership, from tech incubators to boutique law and accounting firms.

Will Smaller Players Finally Thrive in This Market?

The Indonesian market has long been the playground of multinationals. But the lowered capital threshold could tilt the balance, creating space for more nimble, innovation-driven entrants. The rise of SMEs in the digital, sustainability, and consulting sectors may redefine the competitive structure of foreign-owned enterprises.

According to the Ministry of Investment, the reform aligns with Indonesia’s Vision 2045, a roadmap aimed at making the nation one of the world’s top five economies. By 2030, small and medium enterprises are projected to contribute over 60% of GDP and employ more than 97% of the workforce. A more inclusive investment structure directly feeds into that vision.

Encouraging start-up mobility

Entrepreneurs can now channel resources into operations instead of immobilising funds as equity.

Strengthening local partnerships

Smaller investors are more likely to partner with local enterprises, driving technology and skill transfer.

Boosting sustainable innovation

Reduced entry barriers may encourage climate-conscious projects and social impact ventures to take root in Indonesia.

Are There Still Cautionary Lines Investors Should Not Cross?

The optimism is tempered by regulatory prudence. The lower paid-up capital applies primarily to general sectors, such as banking, insurance, and mining, which remain shielded by much higher thresholds (up to IDR 10 trillion in some cases). Moreover, foreign entities are still required to maintain capital for at least 12 months, monitored through the OSS-RBA system and regular investment reports.

This ensures that liberalisation of Indonesia does not devolve into superficial entry. Regulators want real businesses, not shell entities. As the nation modernises its capital markets and digital infrastructure, financial transparency remains a non-negotiable foundation.

Sectoral exceptions remain intact

Highly regulated industries are unaffected by the reform, maintaining prudential safeguards.

Emphasis on accountability

Paid-up capital must remain available for business use for a fixed duration to ensure genuine investment.

Strengthened oversight

The OSS-RBA framework introduces real-time reporting, reducing compliance ambiguity.

Can Indonesia Attract More Global Investors Now?

The recent decision by Indonesia to reduce its paid-up capital requirements is a strategic economic move. The reform comes as global investors reassess emerging markets in the wake of shifting supply chains and rising geopolitical uncertainty. By lowering barriers, Jakarta demonstrates its ability to compete with its more agile ASEAN peers while maintaining governance standards.

Indonesia has evolved from a resource-dependent economy to one powered by digital services, manufacturing, and green infrastructure. With a projected GDP growth of 5.2% in 2025 and a population exceeding 275 million—60% of whom are under 35, the country offers both market scale and workforce vitality. This combination positions Indonesia as a credible alternative to China-plus-one manufacturing strategies and a magnet for mid-tier investors seeking stable growth.

Yet, the attraction of global capital is not guaranteed. Investors remain wary about legal consistency, infrastructure readiness, and bureaucratic execution. While the reform simplifies entry, its real test will be how swiftly the government implements complementary policies in taxation, logistics, and labour flexibility.

Indonesia’s FDI Momentum Is Accelerating

Foreign direct investment in Indonesia reached US$50 billion in 2024, a 16% year-on-year increase, according to the Ministry of Investment. Much of this inflow was driven by sectors like renewable energy, e-commerce logistics, and EV manufacturing. Analysts expect the capital reform to propel FDI to surpass US$55 billion by 2025, thereby narrowing the gap with Vietnam and Malaysia.

The Digital Economy as an Investment Magnet

Indonesia’s digital economy is projected to surpass US$220 billion by 2030 (Google, Temasek, Bain & Co.), supported by rapid fintech adoption and nationwide 5G rollout. Lower capital requirements now make it easier for smaller tech investors, venture funds, and SaaS startups to establish PT PMA entities locally without heavy upfront costs.

Infrastructure and Policy Modernisation

With over US$400 billion allocated to infrastructure through 2025, Indonesia is building 3,000 km of new toll roads and several deep-sea ports. Additionally, the government’s push for the Nusantara smart capital city has created new investment corridors, especially for construction, green energy, and digital connectivity.

Sustainability

The reform complements Indonesia’s commitment to net-zero emissions by 2060, with incentives for climate-focused businesses. The Just Energy Transition Partnership (JETP), backed by G7 nations, pledges US$20 billion to decarbonise Indonesia’s power sector, creating new space for ESG-aligned investors.

Regulatory Flexibility and Global Perception

Global institutions, such as the IMF and OECD, have praised Indonesia’s move toward risk-based licensing (OSS-RBA) as a “model for emerging economies.” This digital compliance mechanism provides transparency and minimises delays, enhancing investor confidence. Combined with the reduced capital barrier, this signals a maturing governance environment that strikes a balance between openness and accountability.

Conclusion

For investors seeking to manage this new regulatory environment effectively, professional guidance is essential. 3E Accounting Indonesia provides expert assistance in company incorporation, compliance management, and tax advisory services, ensuring that foreign investors establish their businesses smoothly while complying with local laws.

And as Indonesia moves toward Vision 2045, aiming to become one of the world’s top five economies, the role of agile, transparent, and compliant investment partners will be crucial. The next decade could define Indonesia’s global investment identity, and those who enter early, with the proper guidance, will stand to benefit the most.

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